Strategic Management - Test 1

When analyzing a firm's external environments, we must apply (3):

1) PESTEL 2) Porter's five forces 3) Strategic group mapping

Four main competitive industry structures:

1) Perfect Competition 2) Monopolistic Competition 3) Oligopoly 4) Monopoly

power of buyers is high when:

1) There are a few buyers and each buyer purchases large quantities relative to the size of a single seller 2) The industry's products are standardized or undifferentiated commodities 3) Buyers face low or no switching costs 4) Buyers can credibly threaten to backwardly integrate into the industry

To increase success of an entry, strategic leaders must consider these five questions:

1) Who are the players? direct and indirect-substitute competitors alongside internal/external shareholders. 2) When to enter? there are no first-mover advantages when a firm is entering an existing industry, but the entering firm needs to understand which stage of the industry life cycle it is entering. 3) How to enter? leverage existing assets, reconfigure value chains, establish a niche. 4) What type of entry? product market, value chain activity, geography, and type of business model. 5) Where to enter? high end versus low end product positioning, ricing strategy, potential partners, etc.

Elements of a good strategy:

1) a diagnosis of the competitive challenge 2) a guiding policy to address the competitive challenge 3) a set of coherent actions to implement the firm's guiding policy

Business functions of SBUs (8):

1) accounting 2) finance 3) human resources 4) precut development 5) operations 6) manufacturing 7) marketing 8) customer service

Examples of black swan events:

1) accounting scandal at Enron 2) Fukushima nuclear disaster 3) 9/11 terrorist attacks

The three pillars of knowledge and research of strategic management:

1) analysis 2) formulation 3) implementation Note: these are interdependent tasks

Three step AFI framework:

1) analyze the external and internal environments 2) formulate an appropriate business and corporate strategy 3) implement the formulated strategy through structure, culture, and controls

Strategic initiatives can emerge through (3):

1) autonomous actions 2) serendipity 3) Resource allocation process

Five examples of advantages independent of size:

1) brand loyalty 2) propriety technology 3) preferential access to draw materials and distribution channels 4) favorable geographic locations 5) cumulative learning and experience effects

The five forces plus one model cannot be used to determine (2):

1) change of speed of an industry 2) rate of innovation

Intensity between existing competitors are cause by four factors:

1) competitive industry structure 2) industry growth 3) strategic commitments 4) exit barriers

an oligopolistic industry is (4):

1) consolidated with a few large firms 2) differentiated products 3) high barriers to entry 4) some degree of pricing power

Primary Strategy objectives:

1) control costs 2) create value

Three generic business strategies:

1) cost leadership 2) differentiation 3) value innovation

Follow these five steps to apply the five forces model:

1) define the relevant industry 2) Identify the key players of each of the five forces and and attempt to group them into different categories 3) Determine underlying drivers of each force 4) Assess overall industry structure - focus on what drive industry profit 5) Draw a strategic group map to explain performance difference within the same industry

Examples of external shocks that fragment industries (4):

1) deregulation 2) new legislation 3) technological innovation 4) globalization

Four responsibilities of CSR:

1) economic 2) legal 3) ethical 4) philanthropic

Exit barriers comprise of two factors:

1) economic 2) social

Seven barriers to entry that incumbent firm benefit from:

1) economies of scale 2) network effects 3) customer switch costs 4) capital requirements 5) advantages independent of size 6) government policy 7) creditable threat of retaliation

Common elements of all industries (3):

1) entry and exit barriers 2) number and size of companies 3) types of products and services offered

Organizational core values provide (2):

1) ethical standards and stability to strategy 2) guardrails to keep company on track

dimensions strategic groups differ on (8):

1) expenditures 2) research and development 3) technology 4) product differentiation 5) product and service offerings 6) market segments 7) distribution channels 8) customer service

What needs to be considered during the analysis phase of the AFI framework (4)?

1) external and environmental challenges 2) firm's internal strength and resources 3) role of strategic leadership and strategy making process 4) firm's business model and competitive advantages

PESTEL helps firms to evaluate (2):

1) external factors 2) external trends

A perfectly competitive industry (4):

1) fragmented and has many small firms 2)a commodity product 3) ease of entry 4) and little or no ability for each individual firm to raise its prices

Porter's model helps companies to (2):

1) gain and sustain competitive advantage 2) determine profit potential of different industries

Examples of strategic commitments (3):

1) geographical ties (GM to Detroit, etc.) 2) contractural obligations to suppliers 3) employee healthcare benefits, retirement, and severance pay

What is not strategy (3)?

1) grandiose statements 2) failure to face a competitive challenge 3) operational effectiveness, competitive benchmarking, and other tactical tools

Five economic factors that can effect strategy:

1) growth rates 2) level of employment 3) interstate's rates 4) price stability 5) currency exchange rates

A monopolistic competitive industry (4):

1) has many firms 2) differentiated products 3) some obstacles to entry 4) ability to raise prices while retaining customers

Strategic commitments are effected by (2):

1) high fixed costs 2) noneconomic considerations (subsidies)

Level-1 Leader: Level-2 Leader: Level-3 Leader: Level-4 Leader: Level-5 Leader:

1) highly capable individual 2) contributing team member 3) competent manager 4) effective leader 5) Executive

Two primary determinants fo firm performance:

1) industry effects 2) firm effects

Firm performance is determined by (2):

1) industry in which the firm belongs 2) strategic group memebrship

industry analysis provides (3):

1) insight into a firm's strategic position within an industry 2) a rigorous way to identify an industry's profit potential 3) the level of profitability that can be expected for the average firm in the industry

What are the variables that determine whether a company has a strategic planning, scenario planning, or plan of emergence (3)?

1) internal environment rate of change 2) external environment rate of change 3) firm size

Three major innovations in process technology:

1) lean manufacturing 2) Six Sigma quality 3) biotechnology

Three nonmarket strategies to influence government:

1) litigation 2) lobbying 3) public relations

Two main strategic groups:

1) low cost 2) product differentiation

Ecological factors include (3):

1) natural environment 2) global warming 3) sustainable economic growth

Examples of perfect competition industries (3):

1) natural gas 2) copper 3) iron

Two ways threats of new entrants effects industry profit:

1) new entrants can potentially lower prices 2) incumbent firms spend more to satisfy their customers which results in less profits

A monopoly (4):

1) only one firm 2) often a large firm 3) maybe a unique product 4) high entry barriers

Six segments of the PESTEL:

1) political 2) economic 3) sociocultural 4) technological 5) ecological 6) legal

DeWeapons of retaliation (5):

1) predatory pricing 2) increased product and service innovation 3) advertising 4) sales promotions 5) litigation

business can function as institutions because of two legal rights:

1) property rights 2) contract obligations

Two ways to achieve competitive advantage:

1) prove goods or services that consumers value more highly 2) provide cheaper good or services

To better understand firm performance, we must look inside the firm and study its (3):

1) resources 2) capabilities 3) core competencies

An intended strategy has the out come of a plan with the following characteristics (3):

1) strategic 2) rational 3) top-down

Managers can influence (2):

1) strategic group composition 2) structure of their industry

External Analysis involves (3):

1) strategic groups 2) competition forces 3) industry structure

Approaches used for strategizing for a competitive advantage (3):

1) strategic planning 2) scenario panning 3) strategy as planned emergence

Three approaches to the process of formulating and implementing a strategy:

1) strategic planning 2) scenario planning 3) strategy as planned emergence

Two parts of the strategy process:

1) strategy formulation 2) strategy implementation

Buying power of suppliers is high when:

1) supplier's industry is more concentrated than the buyer's 2) they do not depend on the buyer's industry fro revenues 3) incumbent firms face significant switch costs 4) suppliers offer differentiated products 5) no readily amiable substitutes 6) credibly threaten to forward-integrate into buyer's industry

Structure of an industry (4):

1) the number and size of competitors 2) the firms' degree of pricing power 3) the type of product or service offered 4) the height of entry barriers.

Three instances where a firm's performance and vision statements share a positive relationship:

1) the vision are customer oriented 2) internal stakeholders are invested in defining the vision 3) Organizational structures align with the firm's vision statement

Shortcomings of PESTEL, Porter's five, and strategic mapping:

1) they are static models 2) they do not allow strategic leaders to fully understand why there are performance differences among firms in the same industry or strategic group

Porter's five forces that shape competition:

1) threat of entry 2) power of suppliers 3) power of buyers 4) threat of substitutes 5) rivalry among existing firms

Rivalry among competitors can be driven by (4):

1) threat of new entrants 2) power of suppliers 3) power of buyers 4) threat of substitutes

Corporate strategy formulation considers (3):

1) which market to compete in 2) which geographic location to compete in 3) which industry to compete in

Level-5 leadership pyramid

5. Executive 4. Effective leader 3. Competent manager 2. Contributing team member 1. Highly capable individual

The external environment can determine roughly ______% of performance differences across firms

50

_________% of from performance is determined by industry and firm effects

75

Upper-echelons theory:

A conceptual framework that views organizational outcomes—strategic choices and performance levels—as reflections of the values of the members of the top management team.

Natural monopolies:

A market in which competition is inconvenient and impractical, and thus efficiency is best achieved by a single seller.

Industry analysis:

A method to (1) identify an industry's profit potential and (2) derive implications for a firm's strategic position within an industry.

Top-down strategic planning:

A rational, data-driven strategy process through which top management attempts to program future success.

How do you assess competitive advantage?

Compare firm performance to a benchmark.

Mision asks:

How do we accomplish our goals?

Most useful to calculate a companies performance:

NET PROFIT MARGIN AND RETURN ON EQUITY

Functional manager:

Responsible for decisions and actions within a single functional area of SBUs

Scenario planning:

Strategy-planning activity in which managers envision different what-if scenarios to anticipate plausible futures.

Near monopolies:

accrued significant market power, for example, by owning valuable patents or proprietary technology

Strategic commitments:

actions that are costly, long-term oriented, and difficult to reverse

Rivalry within strategic groups is more intense than rivalry __________________________

among strategic groups intra-group rivalry exceeds inter-group rivalry

Stakeholder strategy:

an integrative approach to managing a diverse set of stakeholders effectively in order to gain and sustain competitive advantage

Strategic Management:

an integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage

Diagnosis of the competitive challenge is accomplished through ___________________________________

analysis of the firm's external and internal environments

Strategic initiative:

any activity a firm pursues to explore and develop new products and processes, new markets, or new ventures

Emergent strategy:

any unplanned strategic initiative bubbling up from the bottom of the organization

Internal champions are needed for ________________________________

autonomous actions to be successful

Porter suggest competition be viewed more _______________

broadly

Powerful buyers and suppliers are threats to firms because they can both _______________________________

capture some of the firm's profits generated through economic value created

Vision:

captures an organization's aspiration and spells out what is ultimately wants to accomplish

Customer-oriented companies to can adapt better to ___________________________

changing environments

You need a good strategy to deal with ______________________

competition

Companies in the same strategic group are direct ________________________

competitors

The sixth force not mentioned in Porter's model:

complements

Corporate strategy:

concerns questions relating to where to compete in terms of industry, markets, and geography

Strategy formulation:

concerns the choice of strategy in terms of where and how to compete

Strategy implementation:

concerns the organization, coordination, and integration of how work gets done ie. the execution of strategy

Business strategy:

concerns the question of how to compete

Functional strategy:

concerns the question of how to implement a chosen business strategy

consolidated industry:

consists of a few firms, or even just one firm, that can be highly profitable

fragmented industry:

consists of many small firms and tends to generate low profitability

Co-opetition:

cooperation by competitors to achieve a strategic objective

Executives of a firm formulate the ____________________ strategy

corporate

SBUs will formulate their own ______________________________________

cost leadership, differentiation, and value innovation in the quest of competitive advantage

Strategic commitments are ______________________________________

costly, long-term, and difficult to reverse

Competitive advantage flows to the firm that _______________________________

creates the largest gap between value created and cost to do so (V-C)

What is the consequence of filling a need and providing a product, service or experience?

creating shareholder value and making money

First step to gain and sustain a competitive advantage:

define missions, vision, and values.

Product-oriented vision statements:

defines a business in terms of a good or service provided

Customer-oriented vision statements:

defines a business in terms of providing solutions to customer needs

Strategic position:

difference between value created and cost to create product (V-C)

External environment effect strategic groups _____________

differently

The five competitive forces affect strategic groups _______________

differently

External factors in the task environment are ones that managers __________________________

do have some influence on

Threat of entry is high when government polices __________________________________

do not exist or deregulate industries

Society and shareholders require which two responsibilities of the CSR framework?

economic and legal

Competitive industry structure:

elements and features common to all industries

Organizational core values:

ethical standards and norms that govern the behavior of individuals within a firm or organization

Low exit barriers removes _______________________ which are causing low industry profits

excess capacity

Strategic leadership:

executives' use of power and influence to direct the activities of others when pursuing an organization's goals

CEOs spend most of their time in ____________________________

face-to-face meetings

Scenario planning framework of the AFI is a constant _______________________

feedback loop

Key feature of oligopoly:

firms are interdependent

Complements increase demand _____________________________

for the primary product

Two shortcomings of the top-down approach are that _____________________________________

formulation is separate from implementation and we cannot predict the future

A strategic leader will want to leverage weak forces and relax strong ones in order to __________________________

gain competitive advantage

A strategy will define how a firm __________________________________________

gains and sustains a competitive advantage

Managers have little influence over ______________________________

general environment factors such as macroeconomic fluctuations

Industry:

group of incumbent companies facing more or less the same set of suppliers and buyers

Strategic commitments can lead to:

high fixed costs and increased rivalry

One way to make an industry more consolidated ,thus more profitable, is through _____________________________

horizontal mergers and acquisitions

Black swan events:

incidents that describe highly improbable but high-impact events

With monopolies, the one firm is the __________________

industry

rivalry among existing competitors has a direct relationship with the ____________________________________

industry's exit barriers

Mobility barriers:

industry-specific factors that separate one strategic group from another

Upper-echelons theory favors the idea that effective strategic leadership is the result of both _________________________________________

innate abilities and learning

Critics of strategic planning suggest that a strategy should be based on ___________________________ and not just hard data

inspiring vision

High exit barriers lead to _________________________

intense rivalry

The natural and business worlds are ____________________

interdependent (inextricably linked)

Capital, unlike proprietary technology and industry know how, __________________________________

is mobile and can be easily acquired

Destructive price competition can lead to _____________________________________________________________

limited choices, lower product quality, and higher prices for consumers in the long-run if only a few competitors survive

Nonmarket strategies:

lobbying, public relations, contributions, litigation

Vision is the __________________ objective of a firm

long-term

Competing to similar and and just a bit better than your competitor will likely result with ____________________________

low profits and cut-throat competition

Strategic management process:

method put in place by strategic leaders to formulate and implement a strategy, which can lay the foundation for a sustainable competitive advantage

Core value statements provide a _____________________________ to employees

moral compass

Actions of strategic leaders have ___________ impact on firm performance than forces from external environment

more

Firms competing in the same industry tend to ________________________

offer similar products

Switching costs are incurred when moving from _________________________

one supplier to another

Stakeholders:

organizations, groups, and individuals that can affect or are affected by a firm's actions

Visionary competitors often ____________________ their competitors over time

outperform

Substitutes can exist _________________________

outside the industry

illusion of control:

overestimating ability to control events

unrealized strategy:

part or all of a firm's strategic plan that falls by the wayside due to unexpected events

Competitive parity:

performance of two or more firms at the same level

Strategic intent:

pervades the organization with a sense of winning through building resources and continuously learning

Legal factors coexist with or result from ________________________

politcal factors

The strong Porter's five forces are, the lower the industry's ___________________________

potential profits (converse is true)

Three important stakeholder attributes:

power, legitimacy, urgency

Top-down strategic framework relies on the fact that we can _____________________________________

predict future from the past

Monopolies have the most ____________________

price power

Degree of pricing power depends on degree of ________________________

product differentiation

Complements:

product, service, or competency that adds value to the original product offering when the two are used in tandem

Some strategic groups are more __________________ than others

profitable

Successful firms share value with customers through ___________________________

profits (received by firm) and innovative or societal or personal benefit (received by customer)

How do business leaders create an environment in which autonomous action and serendipity can flourish?

provide time and resources for employees to pursue other interests

Without commitment and involvement from top managers, any statement of values is simply a ____________________________

public relations exercise

Serendipity:

random events, pleasant surprises, and accidental happenstance that impact a firm's static initiatives

Competitive advantage is always _____________________, not absolute

relative

To achieve superior performance, companies compete for _________________________.

resources

industry analysis is the most ________________ means of analyzing profit potential within a specific industry.

rigorous

The PESTEL model provides an important way to _____________________________________________

scan, monitor, and evaluate important external factors that effect a firm

Firms in same strategic group tend to follow _______________________________

similar strategy

Ethical and philanthropic responsibilities of the CSR result from ______________________________

societies expectations towards business

sociocultural refers to:

society's culture, values, norms, and demographics

The five forces plus one model is useful for understanding an industry's profit potential at a ________________________ thus making it a ___________________

specific point in time, static model

Core values statement:

statement of principles to guide an organization as it works to achieve its vision and fulfill its mission, for both internal conduct and external interactions; it often includes explicit ethical considerations

dynamics are important to overcome ____________________

static models

Business strategy occurs within ___________________________________

strategic business units

The dimensions to determine a strategic group are mobility barriers, which are ________________________

strategic commitments

To be effective, firms need to back up their visions and missions with ______________________

strategic commitments

Competitive rivalry is strongest between firms within the same _________________________

strategic group

Autonomous actions:

strategic initiatives undertaken by lower-level employees on their own volition and often in response to unexpected situations

Power is defined as:

strategic leader's ability to influence the behavior of other organizational members to do things, including things they would not do otherwise

Strategic planning is not the same as __________________________

strategic thinking

A guiding policy to address the competitive challenge is accomplished through _______________________________

strategy formulation

A set of coherent actions to implement the firm's guiding policy is accomplished through ________________________________

strategy implementation

When a firm uses top-down or scenario planning, lower level employees re mainly focused on _________________________________

strategy implementation

Planned emergence:

strategy process in which organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management

Strategy is the art and science of ___________________________

success and failure

Strategic positioning:

taking a positing in an industry to control costs while providing value to consumers

Firm effects:

the actions strategic leaders take

Managerial actions can effect _________________________________________

the economic well being of large groups of people around the world

What determines the number of strategic groups in an industry?

the number of business strategies

Potential entrants must weigh the ______________________________________________

the required capital investments, cost of capital, and expected return

PESTEL and industry analysis as not ________________

the same

Strategic group:

the set of companies that pursue a similar strategy within a specific industry to achieve competitive advantage

Strategy:

the set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors

Dominate strategic plan:

the strategic option that top managers decide most closely matches the current reality and which is then executed

Industry effects:

the underlining economic structure of the industry

Network effects:

the value of a product or service for an individual user increases with the number of total users

Resource allocation process (RAP):

the way a firm allocates its resources based on a predetermined policies, which can be critical in shaping its realized strategy

Economic contribution is greatest when _____________________________________

there is a greater difference between value creating and cost

PESTEL helps us to identify __________________________

threats and opportunities

A vision is introduced with the word __________ and a mission is introduced with the word ____________.

to ... by

Scenario planning also starts with a __________________________

top-down approach

A firm's realized strategy is a combination of _________________________________

top-down intentions and bottom-up emergent strategies

Strategic initiative can be a result of _____________________________________________________

top-down planning or bottom-up process

Competitive disadvantage:

under performance relative to other competitors in the same industry or the industry average

Putting shareholder interest above all else can _____________________________________

undermine economic performance and threaten the survival of the the firm

Single-minded focus on shareholders alone will expose a firm to __________________

undue risk

Mission:

what an organization actually does: its products, services, and market in which it will compete

Because of trade-offs, strategy is about what do to as much as it is about ____________________________

what not to do

Strategy is not a ______________________________

zero sum game

Sustainable competitive advantage:

a firm that can outperform its computers for a prolonged period of time

Strategic group model:

a framework that explains differences in firm performance within the same industry

Corporate social responsibility (CSR):

a framework that helps firms recognize and address the economic, legal, social, and philanthropic expectations that society has of the business enterprise at a given point in time

Superior performance is the consequence of ___________________________

a good strategy

Top-down strategic planning parallels the approach of ____________________________________

a military general giving orders to subordinates

Industry convergence:

a process whereby formerly unrelated industries begin to satisfy the same customer need

Strategic business units:

a standalone division of a larger conglomerate, with its own profit-and-loss responsibility

Bottom-up strategies start with ______________________________ and result with a unrealized strategy due to ________________________

a top-down intended strategy ... unpredictable events

Stakeholder impact analysis:

a decision tool with which managers can recognize, prioritize, and address the needs of different stakeholders, enabling the firm to achieve competitive advantage while acting as a good corporate citizen

Competitive advantage:

a firm that achieves superior performance relative to other competitors in the same industry or the industry average

Values asks:

What commitments and legal alongside ethical guardrails do we put in place to pursue our vision and mission?

Vision asks:

What do we want to ultimately accomplish?